Continued Strength in Tech and Optimism for Chinese Market Contribute to Positive Week
Market Recap week ending 7/10/20
Markets generally traded higher for the week on the back of continued strength in Mega-cap technology issues and on positive headlines from Chinese state-run media that suggested a “healthy bull market” was imminent for the Chinese stock market. Emerging markets rallied 4.55% on the week. Corporate news dominated the headlines throughout the week and will likely continue as 2nd quarter earnings start in earnest in the coming week. Economic data also continued to show improvement. For the week the S&P 500 gained 1.76%, the Dow added 0.96%, the NASDAQ rallied to all-new highs with an increase of 4.01%- up 18.3% for the year, and the Russell 2000 lagged losing 0.64%. The yield curve flattened a bit for the week but was again subdued in its movement. The 2-year note yield increased by one basis point to 0.16% while to 10-year bond yield declined by four basis points to 0.63%. Gold traded north of $1800, increasing $13.50 to close at 1802.40 an Oz. WTI increased by 0.4% to close at $40.57 a barrel. There were no changes to our models for the week.
Mega-cap technology continued to lead markets higher last week on all kinds of corporate news as well as analyst upgrades and price target increases. Amazon was up over 10% on the week on news that Walmart (also up 10% on the week) would be starting its own delivery service by the end of the month. Citibank’s analyst also took its Amazon price target to a street high of $3550 a share. Similarly, Goldman raised its price target on Netflix to $670, also a new street high. Tesla continued to soar, trading 27% higher on continued momentum and news that Florida would increase installations of new charging stations throughout the state. Apple, Google, and Facebook all traded meaningfully higher for the week. Friday did see a rotation out of Tech and into cyclicals such as Financials, materials, and energy, which seemed to play out in June from time to time when Tech perhaps got a bit ahead of itself. In other corporate news, Warren Buffett’s Berkshire Hathaway announced that it would be acquiring Dominion Energy for 4 billion in cash and assuming 5.7 billion in debt. This is the first acquisition for Buffett since the pandemic started. Uber also announced the 2.65 billion acquisition of Postmates. Covid-19 cases continued to spike in particular states. Still, investors were encouraged by test results about Gilead’s Remdesvir, which suggests mortality rates can decrease by 67% with its use versus the current standard of care. Stay tuned for earnings in the coming weeks; we kick off earnings season in earnest next week with many of the financials set to report on Tuesday and Wednesday.
Economic data on the job front continued to make some progress. Initial claims showed a decrease of 98,000 to 1.314 million. Continuing claims fell dramatically by 698,000 but still stand at a whopping 18.062 million. The Non-Manufacturing ISM index surprised with a reading of 57.1 versus expectations of 49 and followed its manufacturing counterpart into an expansionary mode. Services constitute almost 70% of GDP, so this was excellent news.
